Foreclosure Auctions in Bay Area Frustrate First Time Buyers

Foreclosure auctions in the San Francisco Bay Area have been frustrating first time home buyers as they kept getting outbid by cash-rich investors from auction to auction.

Realtors in the area representing qualified and pre-approved first time home buyers said that many of their clients are getting discouraged by their difficulties in buying units that they find only to lose them to investors who are able to up the price at the auctions.

In one foreclosed home auction held at the courthouse in Contra Costa, a couple bid for a house with a starting price of $149,000. The couple bid until the price got to $180,000. The final price was $265,000, a price level too high for the couple to top. This scenario is not isolated as it is the common scenario at the auctions, according to market participants.

According to Bay Area realtors, first time home buyers are being overwhelmed by vulture investors – the types of investors backed by large pools of cash from private investors and who are snapping up repossessed homes in bulk from banks and at foreclosure auctions.

Barry Zigas, housing policy director for Consumer Federation of America, said that these vulture investors are repeating the strategies of investors during the housing boom – buying properties in loads, making minimal repairs and then renting them out.

Zigas said that over the years, housing advocates have been calling on lawmakers to craft a law that prioritizes the sale of foreclosed homes to owner occupants, but he admitted that it is hard enacting something that prevents financial institutions from recovering the most they can from foreclosures.

In Congress, Representative Barney Frank and other legislators have asked the Federal Housing Administration to increase the amounts of home loans they guarantee in higher-cost regions like Bay Area. However, even if larger loans are available, buyers always lose to cash purchase offers.

To respond to calls for government help for owner occupants, Fannie Mae instituted a scheme so that buyers using government-guaranteed loans and other owner occupants can have the first shot in buying its foreclosed homes. It has given these types of buyers the first fifteen days to buy its foreclosures before it considers offers from investors.

In response to complaints against vulture investors, heads of investment firms like Stone Equity Group and Stonecrest Financial argued that their bulk purchases and aggressive participation in foreclosure auctions are actually helping and rejuvenating the housing and mortgage markets because they are wiping out bad bank assets and putting renters into vacant properties.